Global Markets Overview – 4-12-13

Once again, confidence seedlings are taking root and sprouting. Overnight, weekly jobless claims reversed last week's awful print to beat estimates, falling by 18,000 claims to 342,000. This better-than-expected news was coupled with reports US retailers are experiencing stronger sales (ahead of the official numbers tonight), and allowed US retail shares to step onto the escalator.

The S&P again moved to an all-time high and all-time closing high, finishing at 1593. 1600 points is now so close it can touch it without straining. The four-day rally has completely wiped off the S&P's worst week of the year, which was a drop of 1% last week.

To put that in perspective, the ASX's worst week for the year began March 18 when the index lost 2.62%. The ASX has been unable to hold onto the coat tails of the rising US markets over the previous four weeks, however, today the index finally looks like breaking the four-week losing streak. The question is, can we hold onto this momentum over the coming weeks as the US ramps up Q1 earnings season? All eyes will be on Wells Fargo and JPMorgan tonight; they will provide a very strong lead for those of you with bottom-up perspectives.

Yesterday we highlighted AUD/USD as the trade of the day, as it has been one of the standout performers in the past 72 hours. The pair managed to break above 1.05 on Tuesday on the back of China's trade balance numbers, which showed a big jump in imports. The next major play for AUD/USD was the unemployment rate which was expected to remain steady at 5.4%, with 7500 jobs lost.

However, following the recent surprises in the employment change readings and the fact the ABS (Australian Bureau of Statistics) did come out and state February's print was possibly two times higher than the actuals, the downside risk was overwhelming. AUD/USD fell through the employment trap-door and as we stated in our FX piece, buying in at support levels of 1.05 was likely to be the preferred strategy. This has worked perfectly, with AUD/USD rallying overnight as currency investors scramble for high-yielding currencies due to the fact all three major central banks continue to support monetary easing. Watch for AUD/USD to test $1.06 over the coming hours.

Commodity prices were again mixed overnight; gold was flat, down 90 cents to $1560.60, while copper advanced 0.47% and iron ore moved higher still to $140.90.

Gold is in an interesting position now. It has reached official bear market territory of -20%, but like any investment vehicle there will be market participants that will see gold as an investment opportunity. We are not saying we have changed our take on gold, far from it; it will follow the silver price lower still in the coming weeks. However, we are cautious about some broker predictions that the precious metal will fall into a bottomless pit, which is less likely as support for the gold price will come. Remember, if you could take all the gold in the world and make one block out of it, it would only be 19 metres squared (not much really) - supply and demand rules will take over.

Looking at the open, we are calling the ASX 200 up 15 points to 5022 (0.29%). The major drivers today look like being the banks and consumer staples. WOW's sales update was solid, and that should see it continue to hold at its current highs and should drag WES with it, as investors bet on Coles matching and even beating the WOW results. The banks should also be in the green as we head into reporting season for ANZ, NAB and WBC. Most investors are gearing up for what will be a very interesting period over the next three weeks. Can they follow the lead of CBA?

Considering how positive the week has been for material plays and the fact iron ore is back above US$140 a tonne, profit taking looks like being the order of the day today for this sector, with BHP's ADR pointing down to $33.26, off by 11 cents (-0.32%) after rallying hard off the year-to-date low of $31.66. This will unfortunately dampen what has otherwise being a solid week for the local market, and may see stronger downside pressure in the afternoon as it is the end of the week and investors will close up positions.

IG Markets provides round-the-clock CFD trading on currencies, indices and commodities. The levels quoted in this email are the latest tradeable price for each market. The net change for each market is referenced from the corresponding tradeable level at yesterday's close of the ASX. These levels are specifically tailored for the Australian trader and take into account the 24hr nature of global markets.

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